Why OPEC Isn't Worried About the War

The longer the Iraq war drags on, the better for OPEC. Originally fearing a big American intervention in the oil market, Middle Eastern oil experts are breathing sighs of relief. A top government source in Tehran told the Voice last weekend that Iran now doesn't think the U.S. can trash OPEC, which is fine by the Iranians. Tehran is trying to stay out of the war—if anything, it wants to achieve a modest accommodation with the U.S. The Iranian betting is that the U.S. will have its work cut out just getting the Iraqi oil fields to produce enough to run the country, let alone threaten anybody else. This seems to be a common view among Middle East oilmen. And holding an angry population at bay, the Americans will leave the oil business in the hands of Iraqi technocrats. That leaves them sitting ducks to be picked off by a new dictator, but presumably one picked by the U.S.

The world is awash in oil, and OPEC currently has its hands full trying to keep the price above $25 a barrel so as to guarantee decent returns to the producing countries, as well as a decent return for the Texas independent producers.

The Iraqi oil fields are so dilapidated it will take years to modernize them. Oil industry planners believe Iraq sometime in the future will be able to produce 6 million barrels a day. Before the current hostilities began, production stood at half that amount.

The ideologues around Bush originally dreamed of turning Iraq into an American oil reservoir that could rival any in the world. The Middle East produces some 30 percent of the world's oil, and two-thirds of all reserves are in that region. In 20 years, half the world's exports will come from the area. Saudi Arabia is the largest producer and sits on one-quarter of the world's oil reserves.

The idea was that Iraq, with a modernized industry, could produce quantities of oil sufficient to rival the Saudis. U.S. control of Iraqi oil would not only open up a new supply for the U.S.—where it is anticipated that oil imports will provide two-thirds of the total needs by 2020—but it could also end up changing the entire structure of the energy business. Control of Iraqi oil would allow the U.S. to wield a major counterweight to OPEC, allowing the U.S., not OPEC, to force prices up and down. It would lessen the importance of Saudi Arabia and give the U.S. added clout in its dealings with Russia, Venezuela, and West Africa.

But these bright hopes may well become pipe dreams.

Additional reporting: Phoebe St John, Joanna Khenkine, and Mosi Secret